Aspen to reallocate risks to build track record for capital markets division

One of the issues facing reinsurers that launch dedicated insurance-linked securities and capital markets focused reinsurance divisions is how to raise capital without a track record in reinsurance-linked investments. One way of doing this is to reallocate risks underwritten by the traditional side of the business into the third-party capital management division.
Aspen Insurance Holdings, which launched the Aspen Capital Markets division earlier this year to capitalise on the growing alternative reinsurance market and the interest being shown in reinsurance by capital markets investors, plans to go down this route according to comments made by CEO Chris O’Kane on its quarterly earnings call.

On the call O’Kane gave an update on progress made so far at Aspen Capital Markets and said that the firm is making good progress in executing its plans. O’Kane said that so far the capital markets division has focused on building a team, Brian Tobben joined the capital markets division on its launch as Managing Director and O’Kane mentioned the addition of another person to the team.

That other person is likely to be, we understand, Sal Tucci who held the position of Director of Capital Markets at Aspen Re having moved across from Cartesian Iris, a firm Aspen partnered with in its first ILS venture. It would make perfect sense for Tucci, an experienced ILS sector professional, to work within the Aspen Capital Markets division alongside Tobben.

O’Kane said that Aspen has been putting together the legal framework for Aspen Capital Markets in recent months, establishing vehicles for housing various structures and organising itself as an asset manager in Bermuda.

The firm has not yet begun raising third-party capital, although its likely conversations have started we would assume, O’Kane said this was likely to come later in the year.

In the early stages, to help Aspen Capital Markets build a track record which will be useful in attracting investor capital, O’Kane said that it would likely move across some of the existing Aspen Re reinsurance business into the new vehicles allowing it to begin tracking performance.

O’Kane said the firm is aiming to have the Aspen Capital Markets division up and running by 1/1 for the January renewals, adding that he’s not worried about missing out on the summer when activity is low so work is ongoing behind the scenes to lay the groundwork for a January deployment of capital.

We expect Aspen will put a lot of focus on its capital markets division as cost-of-capital is clearly on O’Kane’s mind. As we wrote before here, O’Kane commented at an event; “I think the cheaper capital is going to win, and that’s why we have founded Aspen Capital Markets, which is essentially an endeavor to turn part of our catastrophe reinsurance expertise into asset management.”